Global Supply Chain Breakdown
The global supply chain- The industry that accounts more then 10% of the worlds GDP and still relies on paper.
Supply chains are for the most part built of 3 major components: Air, Ocean, and Land transportation. Let’s get to know this colossal industry!
Air Freight
The pharmaceutical industry relies on air transport for its speed and efficiency in transporting high-value, time and temperature sensitive cargo, particularly vaccines. USD13.4 billion is spent worldwide on temperature-controlled bio-pharma logistics. By 2021, it is estimated that this will rise to USD16.6 billion.
Air cargo is the fastest mode of transport, on average air cargo shipments take under 140 hours to get from shipper to consignee, including 44 hours under the care of airlines. Whilst speed is the number one reason why shippers choose air; they are not necessarily expecting faster times, but greater reliability and predictability.
The value of goods carried by airlines is expected to exceed $6.2 trillion in 2018, representing 7.4% of world GDP. Air cargo is essential to many facets of modern life. Moving perishable goods from one side of the world to the other would not be possible without air transport.
The total air freight industry carried to 60 million tons in 2017 that’s representing less then 1% of world trade by volume but over 35% by value.
Amazon, Alibaba, eBay and other e-commerce companies rely on the express delivery services made possible by aviation to get those devices, and so much more, to their customers. Transport of letters decreased from 340 to 328 billion letters globally, whereas the number of postal parcels grew from 6.7 to 7.4 billion. In 2016, online retail sales only represented 7.6% of global sales, which shows a huge potential for growth in the years to come.
The cargo business continues to benefit from a strong cyclical upturn in volumes, with some recovery in yields. Volumes are expected to grow by 4.5% and cargo yields are expected to improve by 4.0% in 2018. The growth of e-commerce is expected to support continued momentum in the cargo business beyond the rate of expansion of world trade in 2018.
Cargo revenues will continue to do well in 2018, reaching $59.2 billion (up 8.6% from 2017 revenues of $54.5 billion).
Maritime Freight:
The world’s largest container ships can carry a staggering amount of goods. Carrying over 21,000 TEU, modern container ships can hold up to 745 million bananas. To put that into perspective, that’s roughly one banana for every person in Europe and North America.
With over 80 per cent of global trade by volume and more than 70 per cent of its value being carried on board ships and handled by seaports worldwide, the importance of maritime transport for trade and development cannot be overemphasized.
There are over 50,000 merchant ships trading internationally, transporting every kind of cargo. The world fleet is registered in over 150 nations and manned by over a 1.5 million seafarers globally.
In 2016, demand for shipping services improved, albeit only moderately. World seaborne trade volumes expanded by 2.6 per cent, up from 1.8 per cent in 2015, but below the historical average of 3 per cent recorded over the past four decades. Total volumes reached 10.3 billion tons, reflecting the addition of over 260 million tons of cargo, about half of which was attributed to tanker trade.
Ships are technically sophisticated, high value assets (larger hi-tech vessels can cost over US $200 million to build), and the operation of merchant ships generates an estimated annual income of over half a trillion US Dollars in freight rates.
A container ship travels the equivalent of three-quarters of the way to the moon and back in one year during its regular travel across the oceans.
Worldwide, only around 2% to 10% of containers are actually inspected. U.S. ports normally inspect roughly 5% of the 17 million containers arriving at the border every year.
Thanks to containerization, it is very cost-effective to transport huge volumes of goods by sea. For example, the average costs to ship a bicycle and a can of soda are only $10 and $0.01 respectively.
Road Freight
Road freight transport, or trucking, is essential to modern economies, occupying a unique socioeconomic position linking supply to demand and linking many industrial sectors. As the mode of transport that brings most goods to their final destination, it is indispensable to tourism, trade, and the well-being of any economy, and is a primary indicator of economic health — generating a significant portion of GDP, employing millions of people, and offering the primary means for moving domestic, trans-border, and international cargo.
Road transport represents more than 70 percent of the land freight service at origin and destination points, connecting businesses to world markets. Road transport is the backbone of the real economy, but its future health depends on providing better, not simply more transport.
In 2006, the cost of business logistics in the United Sates rose for the fourth straight year to over 11 percent of the GDP to a record US$1.305 billion (Shulz, Logistics Management, 6/6/2007). Managing logistics in today’s complex environment costs more. Driven by fuel prices, transportation costs rose 9.4 percent in 2007, accounting for 6.1 percent of GDP. Trucking, which accounts for nearly half of the transport in the United States, rose from $52 billion to $635 billion, an 8.8 percent increase.
Oddly, that increase came almost entirely through rising fuel surcharges as actual tonnage fell in 2008 for the first time in many years, down 1.3 percent. Lack of drivers and reduced demand led some carriers to report idle or underutilized equipment. As a percentage of GDP, those costs hit a record low of 8.6 percent in 2003 (the last year of $30-a-barrel crude). The last year they exceeded 10 percent was 2000. By comparison, however, those costs were 12.3 percent in 1986 and nearly 17 percent of GDP in 1979, the last year of regulated ground transport.
In 2007, total US logistics costs grew to nearly $1.4 trillion, representing 10.1 percent of GDP. “Supply chain costs are not always visible to the consumer, yet are a major and growing segment of the economy,” says Rick Blasgen, president and CEO of Council of Supply Chain Management Professionals. “That $1.4 trillion equals annual government spending on national defense, health, and Social Security combined.”(Blasgen, R. 2008).
On a human scale, the cost of moving goods is equal to US$4,656 for every man, woman, and child in the United States. Meanwhile, rail participation in the land road transport market is growing. Rail transportation costs rose 12 percent last year, with freight revenue for Class I rails up US$5.8 billion or 13 percent. Overall rail revenue hit US$54 billion, still only 8 percent of trucking’s revenue but rising. Transport modes, however, are increasingly complementary rather than competitive. Higher costs for fuel, longer and more complex moves, and higher inventory costs are cited as factors in the rise in logistics costs.
